About UCLA Anderson Global Supply Chain Blog
This blog is developed by the Decisions Operations and Technology Management (DOTM) Faculty at the UCLA Anderson School as well as special guests. It is intended to report, analyze, and comment on events that relate to current Global Supply Chain Management issues. Each blog is presented in English, (Simplified) Chinese, and (Castilian) Spanish, and it can take one of the following formats:
(a) An Interview -- the author formulates questions about a current issue, and the interviewee provides commentary.
(b) An insight -- the author provides insights concerning global supply chains, including current events.
(c) An analytical piece -- the author analyzes a particular supply chain issue and formulates descriptive and/or prescriptive views.
For more information on the blog contributors, check the DOTM website.

07/21/2014

Port of Los Angeles: Disintermediation and Other Risks

The ports of Los Angeles and Long Beach are vital to the LA economy, not only because they provide a significant number of jobs in the shipping and logistics industries, but also because they give the city itself a competitive edge with regard to shipping times and transportation costs when it comes to operating a global businesses here. LA’s economic outlook is improving and a key aspect of maintaining that trajectory will be for the port to keep its supremacy.

The Port of LA is America's #1 container port. It saw an 8.2% increase in containerized cargo volumes in May 2014 from the previous year. Its proximity to the Port of Long Beach creates a maritime cluster that supports flexible supply chains with ready access to 14 major freight hubs across the US. The Port of Los Angeles has an annual budget of $940 million and there are plans in place now focused on supply chain infrastructure that include upgrading terminals and realigning transportation access. This included the TraPac Terminal expansion, automation infrastructure, and intermodal facility to provide on-dock rails. Connections to rail and vehicular traffic flow are also receiving significant funding in order to improve the overall goods movement strategy.

Despite its privileged position in the trade network, the Port of LA cannot rest on its laurels. Several key threats are noteworthy:

Competition:

Panama Canal expansion: it's expected to be completed in 2015; there's already been some debate about how it will affect LA, for instance, an LA Times article in 2011 predicted a 25% decrease in business for LA.

Other ports or routes (Suez Canal, Arctic pole) could become more attractive.

Nicaragua is considering building its own canal. It's a dream Nicaragua has had since they lost to Panama back in the early 1900's. Though the option to build has been granted to a Chinese tycoon based in HK, the viability of the project remains unclear.

Pollution and port congestion: environmentalists have targeted the port for being a major source of CO2 emissions – the city will need to find a path that improves the environmental situation without significantly burdening businesses.

3D printing: one could imagine a future in which there's no need to import plastic items (e.g. toys) from Asia because people will be able to print them at home. Today this seems unlikely due to quality issues and economies of scale, but things could change as the technology advances.

One way to combat disintermediation is by adding more value in the supply chain. The port has been taking some action to improve its position in this way which can be seen in its 2012-2017 strategic plan. Additionally, the port could develop an information technology system that lets shippers and the customers better track the progress that products are making through the port in order to provide more accurate expected delivery times; currently there is significant uncertainty regarding the amount of time that it takes for materials to move from the ship to the port and through customs, and the port of LA could differentiate itself by being a leader in this area.

LA's port activity rests on safer grounds than other industries that are more mobile (e.g., movie productions) but it should not be taken for granted. LA cannot afford to give it away.